By Amrith Ramkumar
Americans are starting to capitalize on low prices at the gas
pump as states loosen travel restrictions, a boon for the battered
energy industry and a hopeful signal for the U.S. economic
recovery.
With more states easing lockdown measures enacted to fight the
spread of the coronavirus, people are gradually hitting the road
and causing modest car traffic in cities from Miami to San
Francisco. The slight increase in congestion comes with beaches and
summer destinations opening and many people avoiding public
transportation and airplanes.
That uptick in driving coincides with a nascent recovery in
consumer spending, fueling hopes that the economy is rebounding
from the worst of the virus-induced slowdown.
The optimism is driving a rally in investments from stocks to
commodities. It powered the S&P 500 and oil prices last week to
their highest level since early March. Meanwhile, with more people
driving, the national average price for a gallon of regular
gasoline climbed in four consecutive weeks through May 25 to $1.96
from a four-year low of $1.74 hit in late April, data from tracking
firm GasBuddy show.
Prices are still well below where they started the year. But
their rebound, and the bounceback in oil prices, represent an
initial step for the energy sector's survival. Producers like
Chevron Corp. and Occidental Petroleum Corp. are slashing supply
with crude still below levels that make most projects profitable.
Some investors expect those production cuts and a continued rise in
travel to buoy energy prices moving forward.
Matt Jackson has been driving more in Philadelphia since
returning to work a few weeks ago. The 39-year-old judicial aide
and paralegal student has been working alternate days and lives
about 10 miles from the court building where he works. He has
noticed more traffic on highways lately and hopes to travel to New
Jersey beaches this summer.
"Philadelphia is always a jumping place, and it's coming back,"
he said. "As things begin to reopen, I do see more people." Gas
prices in the area have risen to about $2.20 a gallon from a recent
low of $2.10. Mr. Jackson said the low prices add incentive to take
longer drives.
The energy crash has battered refiners that turn crude into fuel
products, with companies including Marathon Petroleum Corp., Valero
Energy Corp. and Phillips 66 posting some of their worst earnings
in years for the first quarter. Those companies typically do well
when oil prices are low and people are taking advantage by driving
more, but millions of people didn't drive for much of March and
April due to lockdowns.
Demand for gas is slowly starting to creep back. Requests for
driving directions on Apple Inc.'s Maps app are back around
mid-January levels, while data from Dutch location technology firm
TomTom International BV show traffic congestion gradually climbing
in some large U.S. cities, though it is still down substantially
from March levels in many.
"We're already seeing some improvement in demand, and this is
going to continue as people return to more normal activities,"
Valero CEO Joe Gorder said on a call with investors and analysts in
late April. Shares of Valero, Phillips 66 and Marathon Petroleum
have each rebounded 46% or more so far this quarter.
Still, refining activity in the U.S. remains well below normal
levels, and many analysts expect a bumpy recovery until more of the
population feels comfortable traveling long distances. The speed of
recent price moves has made the current environment even more
challenging for energy companies. One price of U.S. crude dropped
below $0 a barrel for the first time ever on April 20, meaning
holders of the futures were paying to get rid of them due to a lack
of available storage.
Oil prices have since rebounded to the mid-$30s a barrel but are
still at levels that would leave much of the energy industry
languishing. If prices keep rising, some investors expect producers
to lift supply in response, another factor that could slow the
recovery.
"The first leg of a recovery from a really low point is the
easiest part, " said Rebecca Babin, senior energy trader at CIBC
Private Wealth Management. "There's still a lot of crude around."
She has been driving more recently and has noticed more cars on the
road in Hoboken, N.J., but expects it to take time for demand to
fully rebound.
The recent rise in fuel prices is also a reminder of the big
disparities across states due to a combination of state and local
taxes, refining costs and pricing by energy companies. Prices in
California are at about $2.90 a gallon, while gas costs roughly
$1.65 in Texas.
Bob Haines, a 59-year-old who runs a small auto repair shop in
Waukegan, Ill., often travels a few miles north to Wisconsin to
fill up because gas is much cheaper there. Prices are currently at
about $1.85 a gallon nearby in Wisconsin, 40 cents cheaper than
where he lives.
While Mr. Haines and his family are still limiting their
driving, he is noticing more activity in the area, particularly in
Wisconsin, where the state's top court overturned the state's
coronavirus shutdown order last month.
"People are flocking to the bars, they're flocking to the
restaurants," he said. "It appears we're getting into pre-Covid-19
traffic patterns again," he added, referring to the disease caused
by the coronavirus.
Demand for ride-shares has risen recently in Fort Worth, Texas,
as businesses in the area reopen, said Katrina Titze, a 34-year-old
driver for Lyft Inc. and consultant.
Ms. Titze, who drives about 150 to 200 miles a day in her Toyota
Highlander, said the price of a gallon of regular gasoline in the
area has risen to about $1.60 from a recent low of $1.25.
She has driven throughout the pandemic -- transporting everyone
from health-care workers to Amazon.com Inc. employees -- but
recently noticed an increase in requests to travel to bars and
restaurants.
"People are starting to be more social and go out," said Ms.
Titze.
Write to Amrith Ramkumar at amrith.ramkumar@wsj.com
(END) Dow Jones Newswires
June 01, 2020 05:44 ET (09:44 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.